Mesa came to isles via Hawaiian’s data

The information's confidentiality will be decided during a trial

STORY SUMMARY »

A judge rules in favor of Hawaiian Airlines, saying its information had been misused

Hawaiian Airlines, seeking $173 million in damages and a one-year ban on ticket sales by Mesa Air Group's interisland airline go!, won a major legal battle yesterday when a federal judge ruled that information Mesa obtained from Hawaiian was a "substantial factor" in Mesa's decision to enter the local market.

Bankruptcy Judge Robert Faris made his ruling in a pretrial hearing in which he also determined that Mesa Chief Financial Officer Peter Murnane had destroyed evidence that Hawaiian could have used in its suit.

Faris, though, deferred his decision on damages until the end of a trial starting today that will determine whether the information Mesa received as a potential investor during Hawaiian's bankruptcy was confidential or in the public domain.

He said there was no evidence that anyone other than Murnane was involved in the destruction of evidence, but that Murnane appeared to have deleted material for reasons other than to cover up his viewing of pornography.

A federal judge ruled yesterday that Mesa Air Group misused information it got from Hawaiian Airlines while Mesa was a potential investor during the local carrier's bankruptcy and that Mesa's misuse was a "substantial factor" in its decision to start up the interisland airline go!.

Bankruptcy Judge Robert Faris also ruled that Mesa Chief Financial Officer Peter Murnane concealed and destroyed evidence that could have been useful to Hawaiian in its lawsuit over the Phoenix-based carrier's decision to come into the Hawaii market.

Hawaiian is seeking $173 million in damages plus a one-year ban on ticket sales by go!, whose arrival in Hawaii touched off a fare war that has driven ticket prices as low as $1 one way and left Hawaiian and competitor Aloha Airlines posting millions of dollars in losses.

The $173 million was the amount of damages, including such factors as lost revenue, that Hawaiian suffered because of Mesa's entry into the Hawaii market in June 2006, according to an analysis by aviation consultant Samuel Engel of Simat, Helliesen & Eichner Inc.

What's next

» Hawaiian Airlines and Mesa Air Group start a trial today to determine whether information Mesa received during Hawaiian's bankruptcy was confidential or in the public domain.

» Bankruptcy Judge Robert Faris needs to decide the amount of damages due Hawaiian and whether to grant a one-year injunction keeping go! from selling tickets.

Faris, who issued his ruling at the end of a three-day evidentiary hearing, said he will decide on damages after a trial that is scheduled to start this morning and run through next week. The trial will determine whether information misused by Mesa was confidential and whether former Hawaiian consultant Mo Garfinkle, who later served as a consultant to Mesa, misused confidential Hawaiian information.

In deciding yesterday that Hawaiian is entitled to damages, Faris said there was no evidence that anyone other than Murnane had been guilty of wrongdoing. Still, he said Mesa should be held responsible "to some extent" because Murnane was a high-ranking officer at the company. Faris also gave little credence to Mesa's arguments that Murnane was simply trying to permanently erase pornographic material from his computers.

"Mesa basically trusted Mr. Murnane and others to follow directions and do the right thing," Faris said.

"When you're under pressure from litigation, you can do things that are wrong and stupid."

Mark Dunkerley, president and chief executive of Hawaiian, who is scheduled to testify this morning, said the judge's ruling validates Hawaiian's claims that Mesa "misused our data, then destroyed the evidence of that misuse, and then they covered it up."

"I think the evidence that we've seen over the course of the last couple days shows a remarkably cavalier attitude toward the handling of important evidence in a lawsuit, and I think we were very pleased today that the judge found they had indeed destroyed evidence that was important to us," Dunkerley said. "(Faris) allowed the inference that it was information that was a substantial part of their decision to come to Hawaii. And when all is said and done, it's very difficult to compete fairly once you're confronted by competitors in the way that Mesa has behaved."

Faris deferred his decision on damages because even though he found that Mesa destroyed information and then lied about it to the court, it still needs to be decided whether the information Mesa received from Hawaiian was publicly available.

Mesa attorney Maxwell Blecher, saying that Faris "fashioned his remedy with a scalpel," intends to prove that Hawaiian's accusations about using confidential information are groundless.

"We're gratified that we'll have an opportunity to defend ourselves against this phony claim that they gave us confidential information -- because there was none," Blecher said. "And we're confident that at the end of the day, the judge will reach that conclusion."

Because Faris ruled Mesa misused the information, Blecher said "the whole trial is going to turn now on whether what they gave us was confidential."

"Our principal defense always was the starting point, and that is Hawaiian had to establish that they gave us confidential information, secret information, that wasn't available in the public domain or couldn't have been compiled by industry experts," Blecher said. "And we don't think that they're going to be able to climb that hill."

Jonathan Ornstein, chairman and CEO of Mesa, said Faris will be making "an important decision not only for Mesa, but for the traveling public in Hawaii."

"It goes without saying that if Hawaiian is successful in its request to evict go! from the market, the travelers in Hawaii will suffer from the same high fares that they experienced for so long in the past," Ornstein said. "I don't think there are many people in Hawaii who don't realize that this case is more about eliminating competition than anything else. In spite of Hawaiian's persistent and continuing attempt to tie myself and other people at Mesa to some type of improper activity, we are pleased that the judge determined that there was no evidence found that anyone at Mesa, other than Peter (Murnane), acted improperly."

Mesa signed a two-year confidentiality agreement when it received data from Hawaiian in April 2004, accessing 60 documents and downloading more than 2,000 pages of information. But Mesa was dismissed as a first-round bidder the following month. In September 2005, Mesa announced it was going to enter the Hawaii market. It began service in June 2006.

Dunkerley said the one-year injunction is warranted because Mesa misused "confidential" information in deciding to come into the Hawaii market, "and they jumped the gun by at least a year."

Prior to the start of yesterday's hearing, Blecher attempted to get Faris to withhold making a decision on possible sanctions against Mesa when he announced that Kroll, a security services firm hired by Mesa, had uncovered 58,000 new documents, consisting of 500,000 pages related to Hawaiian, on two additional hard drives that Murnane had handed over to Mesa in mid-September.

But Faris denied Blecher's request, calling it "Mesa's problem" because the deadlines for submitting such evidence had already passed.